Know all about Income from House Property before filing ITR

Income from house property is also subject to taxation under the Income Tax Act 1961 and thus owners are liable to pay taxes on the same.

Income from property is also one of those that come under taxation.

Just like any other income source, income from a house property is also subject to taxation under the Income Tax Act 1961. As a part of this, while the annual value of a property is its taxable value, the owner who receives the income from the property becomes liable to pay the applicable taxes. Notably, taxation which is a key revenue generation stream for the Indian government is applied to a variety of commodities, services, sources of income, and utilities. Income from property is also one of those that come under taxation. Speaking of which, in case you own a house or have rented it out to tenants, you might need to know more about taxes on income from house property.

When come to income from house property, it can be earned both from buildings or lands by using the different income tax return forms such as ITR-1, ITR-2, ITR-3, and ITR-4.  

For different cases, taxpayers need to use different forms among the mentioned ones.  

About Income from House Property

The legal owner of a property remains liable to pay taxes on the income that he receives from his house property. Both self-occupied as well as rental property can be treated as income and comes under the head of Income from House Property.

Before calculating income from house property, one needs to determine the category of their properties as it will help to determine the tax treatment and computation properly. House properties are usually divided into three categories:

1. A property is self-occupied when the house is occupied by the owner or even if he is unable to occupy it because of being employed or working in a different location. 

2. A let-out property is basically when the house is rented out to tenants and the tax owner receives rental income from it.

3. In case the taxpayer has more than two residential properties for personal use, they will have the option to consider any two of them as self-occupied while the remaining ones will be treated as deemed let-out property.

Calculating income from House Property

To calculate one's income from house property, taxpayers need to follow a two-step process which includes calculating the Annual value of the property and next allowing certain deductions from the annual value to compute the income. 

1. Calculating annual value: Income from house property should not be merely perceived as a tax on rental income that is received. It is basically the tax that is imposed on the earning potential of the property which is the capacity of a building to generate income and is assessed through its annual value which is evaluated on the basis of multiple factors such as municipal valuation, fair rent of comparable properties, standard rent, and actual rent received. 

2. Certain deductions: After determining the annual value or what is considered the Gross Annual Value (GAV), owners need to calculate the Net Annual Value (NAV) which is determined by subtracting the necessary deductions including municipal taxes from GAV. Expenses incurred from maintenance and interest paid on home loans are also deducted in such cases.